Activists Call for Wealthy Tax-Exempt Nonprofits to Pay Their Fair Share

For decades, communities around the country that are home to large, wealthy nonprofit institutions like universities and hospitals have struggled with an economic conundrum.

On the one hand, these nonprofits drive employment; attract talent and capital; and bolster the status, reputation, and desirability of the cities they call home. On the other hand, the same nonprofits often have vast real estate holdings—land on which, as nonprofits, they generally pay nothing in local property taxes.

The city of Boston is a telling example. Home to dozens of colleges and universities and world-class hospitals, fully one-tenth of the city’s increasingly valuable land is owned by nonprofit tax-exempt institutions, to the tune of hundreds of millions of dollars in lost property tax revenue every year.

Boston is also one example, among a growing number in the United States, of attempts by local leaders and grassroots movements to hold wealthy nonprofits more accountable for the disproportionate tax advantages they enjoy and for the cost those advantages impose on the communities that house them.

The Troubles with PILOTs

Since 2010, the City of Boston has had in place a program known as Payment In Lieu of Taxes, or PILOT, in which the city’s largest and wealthiest nonprofits are asked to make voluntary payments to the city, with amounts requested based (at least loosely) on the tax-exempt value of their property holdings.

The program brings tens of millions of dollars in extra revenue into city coffers, but its success has been mixed. Under its provisions, nonprofit institutions with more than $15 million in property holdings are expected to pay one-fourth of what they would pay if the property were assessed at commercial tax rates. Fifty percent of this amount is supposed to be paid to the city government in cash, while the remaining 50 percent can be in-kind “community benefit” contributions. What counts as “community benefit” is largely defined by the nonprofit institutions themselves.

Not only are community benefit rules loose, but particularly when it comes to cash payments, only a small fraction of the nonprofits asked for contributions meet the requested amount. Many of the city’s wealthiest institutions—Harvard University, Boston College, Boston University, and Northeastern University, among them—routinely fall short.

For example, in fiscal year 2022, $123.6 million was requested: about $61.8 million in cash payments and the same amount in community benefit contributions. Yet when it came to cash contributions, the total paid was only $35.5 million—a shortfall of over $26 million. It is also worth bearing in mind that were the institutions taxed at for-profit rates, the amount owed would be four times $123.6 million—or nearly $500 million.

Community Members Respond

Since 2018, a Massachusetts grassroots coalition comprised of over 20 different community groups going by the name PILOT Action Group has been pushing elected officials, as well as the nonprofits themselves, to do better.

“Let’s not just have Harvard decide what Harvard wants to do.”

“We’re not interested in making an institution go bankrupt, but we are interested in having the heavy hitters pay their fair share to the city,” says Enid Eckstein, a founding member of the PILOT Action Group.

The group is pushing on two fronts, pressuring wealthy nonprofits to contribute more, and at the same time demanding more accountability from political leaders when it comes to how those resources are spent.

“Right now, the institutions get to decide what they do with community benefits, and the city approves, as opposed to the city leading,” says Eckstein. “Let’s not just have Harvard decide what Harvard wants to do.”

And the partial success of Boston’s PILOT program, says Eckstein, is reason for grassroots advocates to be pushing for more.

“Boston prides itself on having the PILOT program,” Eckstein notes. “This is its opportunity to lead and be bold and to say to Harvard or [other nonprofits]….Hey, let’s sit down with the community and talk about what real partnership means.”

A National Movement

Similar campaigns are playing out around the United States.

In 2020, after years of intransigence, the University of Pennsylvania agreed to contribute some $100 million over ten years to remove lead and asbestos from Philadelphia schools—a victory for organizers who have long been pressuring the Ivy League school to reengage in PILOT payments after it unilaterally stopped making the voluntary contributions years ago.

In 2021, after years of negotiations and lobbying by a coalition of grassroots groups, nonprofits, unions, and city officials, Yale University agreed to significantly increase its PILOT contributions to the city of New Haven, pledging to pay the city an additional $52 million over six years.

That success didn’t come overnight, says Henry Fernandez, executive director of the New Haven nonprofit LEAP, and who served as lead liaison for the city in negotiations with Yale.

One major factor, Fernandez says, was the level of grassroots engagement.

“There was a significant amount of community engagement on the PILOT issue. There were a lot of folks in the community, the labor unions, [the community coalition] New Haven Rising, and other community groups that really organized and pushed towards this idea of greater contribution from the university.”

But another key piece, Fernandez says, was bridging the gap between two seemingly opposing, and both valid, viewpoints: that of the university, which saw its expansion as benefitting the city and its economy; and that of the city, for which the university’s expansion meant at least short-term loss of precious tax revenue.

“I think for a long time the conversations were about how the growth of the university is ‘bad,’ and the university was like, ‘That’s crazy’,” notes Fernandez.

At the same time, residents could accurately complain that “my taxes are going up while yours stay at zero,” says Fernandez.

“There’s a lot of conversation that needs to happen to get through that fundamental difference of opinion and to have everyone understand that everyone appreciates the other side’s point of view,” says Fernandez, noting that successful negotiations required the varies parties to create “structures such that the city and the university share interests around these economic realities.”

The ultimate success of those negotiations, Fernandez says, was largely a process of building hard-won trust between the city, the university, and community members.

Broader Issues at Stake

“Campus land has become a tax shelter.”

Victories for PILOT advocates, when they occur, are hard-fought. It is also true that, especially outside the northeast and mid-Atlantic states, PILOT payments remain the exception, not the norm. Even in those cases where voluntary payments are being made by wealthy nonprofits, they remain just that—voluntary—and generally fall far short of the actual property tax revenue lost to the nonprofits’ land holdings.

Meanwhile, many wealthy nonprofits—universities, especially—have significantly expanded their land holdings over the past decades. Universities like Yale and Harvard, for example, have become major real estate developers in their home cities, expanding their campuses and (generally untaxed) footprint.

“Campus land has become a tax shelter—both for the universities and for their private partners. And this has been a reality for decades,” observes Davarian Baldwin, a professor of American Studies at Trinity College, and the author of, among other works, In the Shadow of the Ivory Tower: How Universities are Plundering Our Cities.

The question of whether those institutions should or can be pressured into making voluntary PILOT payments, Baldwin says, is a “window into unjust land arrangements that are triggering both capital growth and capital hoarding.”

It’s a trend that dates back to the early 1960s, when a new federal statute, part of so-called urban renewal efforts, allowed urban universities to pair up with local redevelopment authorities to clear and acquire urban land—often occupied by lower-income Black and Latinx residents.

“All of these communities that have PILOTs are still struggling.”

“A lot of the areas that are now lucrative research parks or innovation districts near the university, were once Black communities that were demolished through this federal program, this urban renewal program,” says Baldwin.

That sense of historic injustice was paramount in the negotiations that resulted in Yale’s promising more in PILOT payments to New Haven community institutions, says Baldwin, who advised and collaborated with organizers of that effort.

“What was most relevant to them was the way we talked about the university as being like a factory, and the host community as a company town,” notes Baldwin. “And you know, we were relatively successful.”

PILOT payments are one way for communities to recoup revenue and resources lost to wealthy nonprofits’ tax-exempt status—but they aren’t a panacea, Baldwin argues. “All of these communities that have PILOTs are still struggling—because it’s a fraction of what the university or nonprofit would pay if their properties were on the tax rolls.”

Meanwhile, PILOT payments can act to smooth relations with a host city and its leaders without changing the underlying behavior of aggressive real estate expansion. “They continue to just, you know, to build, to expand their footprint in the city and take more and more properties off the tax rolls,” Baldwin says. “And yet they say, ‘Well, wait, we paid our PILOT.’”

Rather than a fix-all solution, Baldwin argues, PILOT programs are a means for the public to exercise at least limited leverage over wealthy and powerful nonprofit institutions that are sensitive to public opinion.

“This is what gets these institutions, these companies, to the table to talk about more equitable financial and land control and labor arrangements,” says Baldwin. “If you’re not talking about land control…especially for a predominantly White institution in predominantly Black and Brown and poor White neighborhoods…you’re not talking about DEI,” Baldwin says.

For institutions, like universities, that purport to believe in and advocate for diversity, equity, and inclusion, “it’s got to extend to all the places where you are,” notes Baldwin. “It’s got to follow your physical footprint.”

The article states that the University of Pennsylvania PILOT payments unilaterally stopped. To clarify, PILOT payments stopped after the agreement between the City of Philadelphia expired in 2000 and was not renewed.